Oil prices rose on Monday after OPEC+ announced a production cut designed to help prop up prices.
OPEC+ countries supply around 40% of the world’s oil and will cut daily production by 1.4m barrels of oil per day.
Brent and WTI surged in early trade on Monday, but the rally faded as the session developed. Brent was 1.6% higher at $77.36 at the time of writing.
OPEC+ producing countries are at odds with most of the West, who would like to see oil prices fall further to control inflation.
OPEC+ countries rely heavily on oil income, and falling prices may adversely affect their domestic economies. Saudi Arabia, for example, has committed to multi-billion dollar spending and investment plans that rely on higher oil prices.
Saudi Arabia pushed ahead with 1 million barrels of oil production cuts themselves.
“Brent crude is trading higher, just above $77 a barrel, but has lost a little bit of steam, after initially jumping on the news of Saudi Arabia’s production cut, which is designed to keep cash rolling into the kingdom,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.
“The decision by Riyadh to reduce production by a million barrels a day in July, and the pledge from other OPEC+ members to lower targets again next year was aimed at shoring up the oil price to breakeven levels. Oil prices are trapped in conflicting tides between production cuts on one hand, and concerns about demand as China’s recovery slows, while a recession in the US looms. So, for now, this production cut is unlikely to show up in a dramatic way at the pumps.
“However, depending on the trajectory of the world’s largest economies, and if Saudi Arabia cuts again, supply shortages could emerge later this year, which could push prices higher but still way off the excruciating levels of last summer.”